The Fraser of Allander Institute is forecasting a “sharp slowdown” in Scotland's economic growth over the next three years as a result of the UK's decision to leave the EU.

The economic forecaster predicts the Scottish economy is “likely to face a period of economic uncertainty and financial volatility posing a risk to investment, household incomes and growth”.

It also believes Scotland's trade and investment prospects will be damaged by the decision to leave the EU.

Fraser of Allander said while anticipated economic stimulus from the Bank of England and the sharp decline in the value of sterling post Brexit vote will “mitigate the immediate shock”, the largest downward revision is to growth in 2017 and 2018.

It forecasts Scotland's economy will grow 0.9 per cent in 2016, down from 1.4 per cent forecast earlier in the month.

However Fraser of Allander forecasts growth will slow to 0.5 per cent in 2017, down from an earlier forecast of 1.9 per cent, and then 0.7 per cent growth in 2018, down from an earlier forecast of 2.0 per cent growth.

Unemployment is also forecast to rise to 6.5 per cent this year and then to seven per cent in 2017 before easing back slightly to 6.8 per cent in 2018.

Most recent official figures from Scotland's Chief Statistician suggested Scotland's economy flatlined in the first three months and latest ONS figures put Scotland's unemployment rate at 5.5 per cent.

The Fraser of Allander report states: “We have lowered our forecast in 2016 but predict that the growth rate will be more materially impacted in 2017 and 2018 as the effects of the decision to leave the EU take time to feed through to the real economy.

“In the absence of a significant fiscal policy response by the UK Government, a short technical recession is a distinct possibility.”

Adding: “Our forecast suggests that whilst there will be a slowdown in the rate of growth, the Scottish economy will avoid an annual recession (i.e. a full calendar year where output falls).

“However, growth will be perilously close to zero in individual quarters and a short ‘technical recession’ in Scotland – defined as two consecutive quarters of falling output – is highly possible.”

A recent Scottish and UK Economic Report from accountants PwC revised Scotland's GDP growth projection down to 1.3 per cent in 2016 and predicted growth will fall to 0.3 per cent in 2017.